7 tips to prepare for selling your business

27 November 2017
by
National Bank

Thinking about selling your business to an external buyer? Make the
right moves to maximize its value.

1- Before putting up the for-sale sign, get things in order

Selling a business isn’t something to be done on the fly. To attract
potential buyers and sell at the best price possible, Eric Lemay,
Senior Vice-President and Director of Corporate Finance at PwC,
suggests starting by getting your books, minutes, contracts, legal and
tax structures, etc. in order. Otherwise, he says, you risk finding
yourself in a vulnerable position.

For Brian King, Associate Professor in the Department of
Entrepreneurship at HEC, “It’s the entrepreneur’s responsibility to
make sure that their company is always in order.” That way, if you’re
unexpectedly forced to quickly sell the business, you’ll have an
easier time getting a fair price. On the flip side, he warns, “If it’s
not in order, you may end up having to sell at a discount.”

2- Don’t rush

Preparing to sell a business can take years. Especially when there’s
a strong emotional component involved. “As an entrepreneur, you need
to be at peace with your decision to sell,” maintains Eric Lemay.

The best time to sell? When market dynamics are in your favour. “If
you operate in a cyclical industry and it’s in a depression,” he
continues, “wait for it to bounce back before selling.”

3- Separate the urgent from the important

When you’re an entrepreneur, it’s easy to let yourself get swept up
in putting out fires. Get into the habit of asking yourself every day
if what you’re working on is important or urgent, advises Brian King.
“Try to set aside part of your day to work on what’s important,
because that’s what will allow your business to grow in value.”

Even if you’ve made the decision to sell, you should still continue
to invest in innovation and improvements. Otherwise, the value of your
business could suffer.

4- Be well-supported

Selling a business is a complex process. “The legal, accounting and
regulatory aspects are getting more and more burdensome,” observes
Eric Lemay of PcW. “A transaction is like a highway covered with
orange cones, yellow lights, red lights, traffic. There are lots of
pitfalls to avoid. The majority of entrepreneurs who travel this road
tell us they never imagined it would be so complicated.” That’s why
it’s a good idea to seek out support and advice
from the experts.

This precaution also tells potential buyers that you’re serious,
according to François Fauteux, Founder and Managing Partner of Phoenix
Partners, a private investment company that acquires controlling
interests in Quebec businesses. “It shows that the business-owner has
thought things through.”

5- Stay focused on growth

Relying on external guidance will also help you stay focused on doing
business. “It’s a mistake to think that you can manage both your
business, and the sale of your business, well,” affirms François
Fauteux. Especially since finding a buyer and closing the sale can
take several months. During this period, creating value needs to
remain a priority. “You need to run the business as though you were
planning to keep it, in other words, do what’s best for the business
long-term,” advises Éric Lemay. And don’t forget that until the deal
is closed, “there’s always the possibility that something could derail
the transaction,” he adds.

6- Don’t disrupt daily activities

When the Cirque du Soleil started taking steps to find a buyer, its
president and CEO Daniel Lamarre told his team, “Only two people will
be involved in the process and negotiations, the head of finance and
me. No one else should be thinking about it. Concentrate on your work,
and maintain the value of the company.”

So that activities can continue normally, include as few people in
the sales process as possible, according to him. Of course, that
doesn’t mean you shouldn’t be well-supported. The Cirque was supported
by countless external advisors while it was being sold to the U.S.
investment firm TPG Capital in 2015.

7- Be realistic with your expectations about the sale price

There are three objective methods to determine the value of a
company. It can be evaluated on the basis of its assets, the sale
price of comparable companies or its cash flow. However, there’s
always an element of subjectivity in any transaction. “The value of a
company is the price a buyer is prepared to pay,” says François
Fauteux of Phoenix Partners. “There’s an understanding that it’s
relatively nebulous and very subjective. It takes future cash flow
into account, but also the intangible value that comes with a
competitive advantage. It’s also a question of perception, supply and
demand, negotiation.”

As a seller, you might have a tendency to overestimate the value of
your business because of the emotional ties you have to it. Being
aware of that bias will allow you to better manage your expectations
so you can more easily come to an agreement that satisfies both parties.

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